Thursday, September 3, 2009

Predatory Landlord’s Scheme Starts To Unravel in East Palo Alto

On Tuesday not only did tenants score a big victory against Page Mill in court, but news also came out that the real estate investment company may be losing its 1700 some units in EPA due to foreclosure after missing a $50 million payment to Wells Fargo. And after their recent attempt to begin the process of removing the west side of EPA from the city limits, it'd be hard to argue they didn't have it coming.

Legal Troubles

On September 1, San Mateo Superior Court Judge Steven Dylina granted plaintiff's motion for a preliminary injunction in the closely watched Oberle v. Page Mill Properties class action lawsuit. The injunction will bar Page Mill and its related companies from collecting or enforcing rent increases that do not comply with the limits of the East Palo Alto Rent Stabilization Ordinance. The ruling represents a major setback for Page Mill's plans in East Palo Alto.

East Palo Alto tenants, organized by the Fair Rent Coalition, showed up in force and packed the chambers for the hearing that was held in a different city and that lasted the full day.

Chris Lund, a Page Mill resident and tenacious organizer with the EPA Fair Rent Coalition commented, "The judge's rulings are significant and unambiguous victories for East Palo Alto tenants. Page Mill's lender, Wells Fargo, and its partner, CalPERS, should take note."

(As we've explained in previous posts, CalPERS, the state's public employee pension fund has invested $100 million in Page Mill, effectively investing the funds of working people in a scheme to displace working people from their homes.)

As we've reported before, after gobbling up more than half of the rent-controlled apartments in East Palo Alto, Page Mill Properties immediately began imposing huge rent increases and evicting tenants at unprecedented rates. The company has repeatedly sued the city over local laws protecting tenants and filed unsuccessful petitions to raise rents. Page Mill Properties has also invoked the controversial Ellis Act to evict outspoken tenant activists, prompting accusations that the evictions are retaliatory.

The Oberle litigation involves Page Mill's effort to exploit a "mom-and-pop" exemption from the local rent law. Under the exemption, owners of four or fewer units are not subject to the rent increase limitations of the RSO. Page Mill created numerous companies, each to own four or fewer units, and then these companies imposed huge rent increases claiming to be exempt from the ordinance.

The Court squarely rejected Page Mill's argument that each of its corporate entities was to be considered separately. Applying the alter ego doctrine, the court disregarded the corporate forms set up by Page Mill in evaluating whether these entities could qualify for the exemption as owners of less than five units. The Court found that the tenant plaintiffs had shown such a "unity of interest" that the separate corporate personalities "do not in reality exist," and that the multiple entities had been used as conduits for a single enterprise. The court determined that recognizing the corporate entities would lead to an inequitable result.

The hearing lasted the entire day on Tuesday. Plaintiffs' counsel, Robert Hawk and Ryan Marsh of the law firm Hogan & Hartson, successfully argued that Page Mill's companies inconsistently claimed to be a single entity when it served their purposes, but then claimed separateness when trying to evade tenant protections through the "mom-and-pop" exemption.

The most moving part of the hearing came near the end, when, after hours of technical legal arguments, Ryan Marsh went through the stories of individual tenants whose declarations had been submitted to the court. Marsh offered stories of tenants whose rent increased from 45% to 75% in a single year under Page Mill ownership. He noted individual tenants who are forced to work overtime to afford the rents, including one tenant who is paying 90% of his income to rent, another who had to stop taking heart medication due to lack of funds, and another who was forced to go to a food bank because of the rent increases.

Financial Troubles

On the same day as the hearing, the San Jose Mercury News reported that Page Mill is facing financing problems that could lead to foreclosure. According to the article, "ownership of more than 1,700 units in East Palo Alto is in question after the company failed to make a $50 million payment to Wells Fargo Bank last month." Page Mill is urging Wells Fargo to renegotiate the terms of the loan, but tenant advocates question why Wells Fargo should renegotiate with a property owner with Page Mill's track record. The article also notes maintenance problems at Page Mill buildings, with pools recently being shut down by city health officials (including one that is bright green with algae), raising further questions about why Page Mill should be allowed to continue managing the property.

Remarkable Audacity

On August 27, The Mercury News delivered the shocking and disturbing headline, "Page Mill seeks to remove west side of East Palo Alto from City Limits." This from a company that absurdly claims to be engaged in a constructive "public/private partnership" with the City of East Palo Alto. In fact, according to city officials, a "partnership" between Page Mill and the city never existed, and Page Mill has repeated taken an adversarial approach to the city, including filing numerous lawsuits against the city that have been a substantial drain on the small city's resources.

On June 30 an attorney for one of Page Mill's subsidiaries filed documents asking the San Mateo Local Agency Formation Commission (LAFCo) to remove areas west and south of Highway 101 from the city's "sphere of influence." As Mercury News reported:

"If approved, the move could be a first step toward unincorporating part of the city that had struggled a long time to form."

This is an extraordinarily audacious and transparent attempt by Page Mill to remove the rent controlled units they purchased and manage from the jurisdiction of East Palo Alto's Rent Stabilization Ordinance.

LAFCo's executive director, Martha Poyatos said this was "a pretty unusual request" and that she would recommend against its adoption "noting that formation of a community services there would be financially infeasible and contrary to LAFCo's mission of simplifying and consolidating municipal services for greater efficiency."

As always, we'll keep you updated on the ongoing battle between the people of EPA and Page Mill Properties.

1 comment:

Thank you for posting this well-written summary of the serious problems that reckless speculation and even worse management has visited upon the hard-working residents of East Palo Alto. I would encourage Californians concerned about this to contact their representatives.

The fact that private retirement money under public oversight (the word here alas has a double meaning) was ultimately behind this mess speaks all too well about the need for tougher oversight rules involving pension funds dealing with residential properties. David Taran and his business partners have done the community a great disservice. I guess we will see the test of Mr. Taran's character and that of CalPERs by how they work to clean up this mess and allow rent-paying tenants to enjoy the benefits of what the law promises them and what they have paid for.

Tenants Together is a beacon of light in a dark night. No one here is asking for anything other than for the law to be followed, and proper business procedures to be adhered to. But if this isn't provided as promised and expected, people need to speak up. Please contact members of the state legislature committee and encourage them to investigate this matter in the CalPERs Oversight Committee. Controls need to be put into place to make sure that the appropriate people are punished and that this kind of thing does not repeat itself.

East Palo Altans have faced adversity before, and they will rise above it. But please, if you are reading this, call your representatives and express concern both for the particular situation and for the wanton mismanagement of public retirement funds. CalPERS has known about this situation for over a year and has done nothing. This is unacceptable.

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